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Hope springs eternal…French bondholders and the Soviet Repudiation (1915-1919)

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Author Info
John Landon-Lane () (Rutgers University, The State University of New-Jersey, Department of Economics)
Kim Oosterlinck () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)

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Abstract

By their extreme nature, repudiations rarely occur. History is therefore crucial to analyze their impact on bond prices. This paper provides an empirical study based on an original database: prices of a Tsarist bond traded in Paris before and after its repudiation by the Soviets. A structural vector autoregression is used to identify shocks to this bond that are orthogonal to shocks hitting a proxy for the Paris bond market, the French 3% rente. French market shocks are thus disentangled from repudiation specific shocks hitting the Russian bond. Consistent with expectations no major Russian shocks appears before the 1917 revolution. For 1918, shocks are mainly related with bailouts or hopes of partial bailouts. In 1919, however, the nature of shocks changes as they can be explained either by the negotiations with the Soviets or by the fate of the White Armies. In view of these elements, we argue that the bonds’ value were subject to a “Peso problem”. Their prices essentially reflected expected extreme events that never took place.

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File URL: http://www.solvay.edu/EN/Research/Bernheim/documents/wp05013.pdf
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Paper provided by Université Libre de Bruxelles, Solvay Business School, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number 05-013.RS.

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Length: 38 pages
Date of creation: Nov 2005
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Handle: RePEc:sol:wpaper:05-013

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Related research
Keywords: repudiation sovereign debt secession Russia Soviet war country break-up.

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Find related papers by JEL classification:
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
G1 - Financial Economics - - General Financial Markets
N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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  1. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 289-309, April. [Downloadable!] (restricted)
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  5. Kim Oosterlinck & Ariane Szafarz, 2004. "One Asset, Two Prices: The case of the Tsarist Repudiated Bonds," Working Papers CEB 04-022.RS, Université Libre de Bruxelles, Solvay Business School, Centre Emile Bernheim (CEB). [Downloadable!]
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  6. Michael D. Bordo & John Landon Lane & Angela Redish, 2004. "Good versus Bad Deflation: Lessons from the Gold Standard Era," NBER Working Papers 10329, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Willard, Kristen L & Guinnane, Timothy W & Rosen, Harvey S, 1996. "Turning Points in the Civil War: Views from the Greenback Market," American Economic Review, American Economic Association, vol. 86(4), pages 1001-18, September. [Downloadable!] (restricted)
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  10. William O. Brown, Jr. & Richard C.K. Burdekin, . "German Debt Traded in London During World War II: A British Perspective on Hitler," Claremont Colleges Working Papers 1999-19, Claremont Colleges. [Downloadable!]
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  13. Kim Oosterlinck, 2003. "The Bond Market and the Legitimacy of Vichy France," Working Papers CEB 03-003.RS, Université Libre de Bruxelles, Solvay Business School, Centre Emile Bernheim (CEB). [Downloadable!]
    Other versions:
  14. Bruno S. Frey & Marcel Kucher, . "History as Reflected in Capital Markets: The Case of World War II," IEW - Working Papers iewwp002, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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